Lithium-Ion Battery Maker A123 Shares Tumble With News of Recall

Eric Wesoff is Editor-at-Large at Greentech Media. Prior to joining GTM, Eric Wesoff founded Sage Marketing Partners in 2000 to provide sales and marketing-consulting services to venture-capital firms and their portfolio companies in the alternative energy and telecommunications sectors. Mr. Wesoff has become a well-known, respected authority and speaker in these fields.

His expertise covers solar power, fuel cells, biofuels and advanced batteries. His strengths are in market research and analysis, business development and due diligence for investors. He frequently consults for energy startups and Silicon Valley's premier venture capitalists.

A123 (Nasdaq: AONE) had a rocky 2011. 2012 is turning out to have its challenges as well.

The lithium-ion battery maker just announced "a field campaign to replace battery modules and packs that may contain defective prismatic cells produced at A123's Livonia, Mich. manufacturing facility," according to a release. The "defect has been discovered only in some prismatic cells" built at the firm's Livonia facility.

Although the lithium-ion battery firm has made some strides in utility-scale energy storage, the company faces a number of challenges with its Fisker Automotive business, as well as rising losses amidst warranty issues and production hiccups. This recall will not help matters.

Revenue for the final quarter of 2011 is expected to be approximately $40.4 million, below consensus estimates.

Net loss in the fourth quarter looks to be approximately $85.0 million, an increase from the loss of $63.7 million in Q3

The company chose not to invest in a recent round of financing for the extended range luxury automaker Fisker.

Contributing to net loss were warranty charges of $10.6 million related to repairs for one customer and costs associated with repairing battery packs for another customer.

Also contributing to losses was $10.1 million in greater-than-expected scrap rates for the quarter.

A123 has requested a 15-day filing extension for its annual 10-K -- no reasons were provided.

The company looks for revenue in 2012 to be in the range of $230 million to $300 million.

On a positive note, A123 just won a new hybrid bus contract in India with Tata Motors for large battery packs. According to Jeff Osborne at Stifel, the battery packs are in the 12-kilowatt-hour range and margins are expected to be better in the bus business than the automotive business, with volumes starting in the hundreds and potentially growing into thousands of units in late 2012 and 2013. The company also noted that over the past three months it has been awarded five contracts representing 17 megawatts of grid business.

Another project with Massachusetts utility NSTAR is a 2-megawatt pilot that A123 will own and operate to serve ISO New England’s frequency regulation market under the grid operators Alternative Technology Regulation (ATR) pilot program.

A123’s project with Hawaii’s Maui Electric Co. is aimed at supplying a different set of energy storage functions. The battery array will be installed at a substation serving the high-end resort community of Wailea, and will be able to supply 1 megawatt-hour of energy storage, both to reduce peak load by as much as 15 percent and to smooth voltage and improve power quality, said Chris Reynolds, Maui Electric’s operations superintendent.

Grid energy storage is still cost-prohibitive in all but a handful of edge cases, but it’s also expected to be increasingly important as intermittent wind and solar power take a larger role in power generation.